By Emily Bary
Guggenheim upgrades to buy on hopes for digital-ad shift, improvements in monetization
Even with shares up more than 200% so far this year, Roku now looks like a "buy" to Guggenheim's Michael Morris.
He turned bullish on Roku's stock (ROKU) in a Wednesday morning note, arguing that there's more room to run as the hot streaming-media company continues to benefit from new over-the-top services as well as rising digital-ad spending.
"We recognize the heightened risk associated with the company's high relative valuation but believe that at its current $10.6 billion market capitalization, Roku's asset value is compelling given its strong and growing household penetration," wrote Morris, who raised his price target on the stock to $119 from $79 in conjunction with the upgrade.
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Roku shares are trading at record-high levels, up 4.3% Wednesday.
Morris argued that the company's first-quarter results were "representative of the core trajectory for key metrics." One data point that stuck out to him was Roku's disclosure that its operating system was found in a third of all U.S. smart TVs sold during the period, up from "over 25%" the previous time Roku reported the statistic.
"Management once again expressed confidence that monetization of usage, which has lagged overall usage growth, is poised to follow consumer demand for streaming video," Morris wrote. "We assume continued growth in demand for addressable video advertising opportunities and display advertising as new product launches allocate meaningful marketing budgets to endemic advertising opportunities to drive adoption."
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He expects the streaming-ad market to get a jolt "as growth in streaming volume and the higher advertising return on scaled, targeted video advertising becomes increasingly apparent."
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Of the 17 analysts surveyed by FactSet who cover Roku's stock, nine have buy ratings, six have hold ratings, and two have sell ratings. Wall Street's generally rosy view of Roku shares recently sparked a downgrade ( ) from an analyst at Stephens, who argued that even the analysts with the lowest estimates and ratings on the stock are upbeat, creating "real near-term risk."
The stock has climbed 50% over the past month, as the S&P 500 has fallen nearly 5%.
-Emily Bary; 415-439-6400; AskNewswires@dowjones.com
(END) Dow Jones Newswires
June 05, 2019 10:52 ET (14:52 GMT)
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